Ambulatory Services of Puerto Rico, LLC v. Sankar Nephrology Group LLC

Filing 24

MEMORANDUM OPINION and ORDER: The court ORDERS that plaintiff's 6 motion to stay arbitration be, and is hereby, denied. The court further ORDERS that defendant's 16 motion to compel arbitration be, and is hereby, granted subject to r esolution of the issue of arbitrability. The court further ORDERS that by 4:00 p.m. on May 19, 2017, defendant submit in accordance with the Commercial Arbitration Rules the issue of arbitrability for resolution by the arbitrators as promptly as pos sible. The court further ORDERS that defendant inform the court promptly once the arbitrators have resolved the issue of arbitrability, and that if it has not been resolved by 4:00 p.m. on June 8, 2017, defendant inform the court by that time and date as to the progress of the resolution of the arbitrability issue. (Ordered by Judge John McBryde on 5/9/2017) (tln)

u.s. DiSTR!CTCOLii-lT"".--·.....,
NORTHERN
::;:·oFTEXAS
IN THE UNITED STATES DISTRICT C URT
NORTHERN DISTRICT OF TEXAS
FORT WORTH DIVISION
AMBULATORY SERVICES OF PUERTO
RICO, LLC,
Plaintiff,

vs.
SANKAR NEPHROLOGY GROUP, LLC,
Defendant.

MAY -9 20l7

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Deputy

NO. 4:17-CV-230-A

MEMORANDUM OPINION
and
ORDER
Came on for consideration the motion of plaintiff,
Ambulatory Services of Puerto Rico, LLC, to stay arbitration.
Defendant, Sankar Nephrology Group, LLC, responded and moved to
compel arbitration. Having considered the motions, defendant's
response, the record, and applicable legal authorities, the court
concludes that plaintiff's motion to stay arbitration should be
denied and defendant's motion to compel arbitration should be
granted subject to resolution of the issue of arbitrability, that
this action should be stayed until the issue of arbitrability has
been resolved, and that if it is resolved in favor of arbitration
of the disputes between plaintiff and defendant, this action
should be dismissed without prejudice to the outcome of the
arbitration.

I.

Background
Plaintiff and defendant formed SNG Naranjito, LLC
("Naranjito"), a Puerto Rico limited liability company, in 2014
for the purpose of operating a dialysis clinic in Puerto Rico. On
August 1, 2014, the parties executed a Limited Liability
Operating Agreement ("Operating Agreement") and a Membership
Contribution Agreement

("MCA"), outlining the "terms and

conditions governing the structure, operation and management of
[Na.ranjito] ," Doc. 1 7 at 19, and providing for the contribution
of assets to Naranjito, id. at 5. The Operating Agreement
contains the following provision:
Section 12.12 Dispute Resolution. Except for
alleged breaches of Article X [Covenants and
Representations] above, in the event that a dispute
arises between two or more Members under this
Agreement, the parties will first negotiate in good
faith to try to resolve the dispute. The respective
Members, or chief executive officers (or officers
holding such authority) of such Members, shall meet in
a timely manner and attempt in good faith to negotiate
a settlement of such dispute during which time such
persons shall disclose to the others all relevant
information relating to such dispute. In the event that
the parties are unable amicably to resolve the matter
or matters in dispute, and except where the exigency of
the matter reasonably requires injunctive relief to
preserve the status quo, the Members shall submit all
matters still in dispute to conclusive and binding
arbitration in Fort Worth, Tarrant County, Texas,
before a panel of three arbitrators in accordance with

'The "Doc._" references are to the number of the item on the docket of this action.

2

the Commercial Arbitration Rules of The American Health
Lawyers Association. Except as otherwise agreed by all
parties to the arbitration, one arbitrator shall be
chosen by the party demanding arbitration, one by the
party responding to the demand for arbitration, and the
third shall be chosen by the first two named
arbitrators, all from a list of candidates provided by
The American Health Lawyers Association. The
arbitrators may award to the prevailing party in their
opinion its attorneys' fees and costs incurred in
connection therewith. Venue for any action in court
regarding arbitration, including without limitation the
enforcement of its decision, shall be in Fort Worth,
Texas.
Id. at 58.
According to plaintiff, defendant, without plaintiff's
knowledge, bought into Naranjito by negotiating a secured loan
with Branch Banking & Trust Company ("BB&T"), in which defendant
borrowed against the contributed assets under the MCA and
arranged for Naranjito and plaintiff to become liable for the
repayment of the loan. Doc. 1 at 5,

~

23-24. In 2016, plaintiff

and defendant sold Naranjito's assets to Bio-Medical Applications
of Puerto Rico, Inc.

("Bio-Medical") for $7,000,000.00 and

executed an agreement that allocated the sale proceeds according
to each member's ownership interest (the "Member Sale
Agreement" ) . 2
After the Naranjito asset sale, defendant filed a Demand for
Arbitration with the American Health Lawyers Association.

'The Member Sale Agreement is titled "Agreement to Sell Assets of SNG Naranjito, LLC to
Fresenius Medical Care." Bio-Medical is a member of Fresenius Medical Care.

3

Defendant claimed that Carlos R. Rivera, the owner/president of
plaintiff, breached his fiduciary duty to Naranjito by retaining
Naranjito's income or gains for personal use in violation of the
Operating Agreement. Additionally, defendant requested
declaratory and injunctive relief to resolve issues surrounding
Naranjito's asset sale and the distribution of the sale proceeds.
Plaintiff countered defendant's Demand for Arbitration by
filing a complaint and motion to stay arbitration in the abovecaptioned action on March 16, 2016, asserting two claims for
breach of contract and seeking declaratory relief. Plaintiff
claimed that defendant "breached Section 2 of the MCA by
encumbering the Contributed Assets with liabilities and
obligations personal to [defendant] with no benefit to and to the
detriment of [plaintiff] . " Doc. 1 at 11, , 50. Plaintiff also
claimed that defendant breached the Member Sale Agreement by "(a)
hindering and preventing the payment of [plaintiff's] share of
the proceeds directly to it,

(b) causing Bio-Medical, instead, to

pay the proceeds to accounts at BB&T rendering the proceeds
inaccessible to [plaintiff], and (c)
[plaintiff]
at 12, ,

failing to pay to

its 40% share of the $7 Million sale proceeds." Id.

58.

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III.
Grounds of the Motions
Plaintiff contended that the arbitration filed by defendant
should be stayed pending resolution of the above-captioned
action. In support, plaintiff argued that its claims, and by
e~tension

defendant's arbitration claims, are not subject to

arbitration because they arise out of the MCA and the Member Sale
Agreement, both of which do not contain arbitration provisions.
Such claims are also not subject to arbitration pursuant to the
Operating Agreement, plaintiff asserted, because the claims do
not arise under such agreement and do not fall within the narrow
scope of the Operating Agreement's arbitration provision.
Plaintiff argued that the court should determine the question of
arbitrability because the Operating Agreement's arbitration
provision does not limit the court's authority to decide
arbitrability or delegate such power to the arbitration panel.
Doc. 6 at 5.
In its motion to compel arbitration, defendant principally
argued that the parties agreed to delegate arbitrability to an
arbitrator, and that the arbitrator, not the court, should
determine whether the parties' dispute fell within the scope of
the Operating Agreement's arbitration provision. Such arbitration
provision, defendant claimed, clearly and unmistakably showed

5

that the parties agreed to delegate arbitrability by expressly
stating that arbitration would take place in accordance with the
Commercial Arbitration Rules of The American Health Lawyers
Association. Regardless of the outcome of the arbitrability
issue, defendant argued that all claims pertinent to this action
are arbitrable because they are all "factually intertwined" and
thus fall within the scope of the Operating Agreement's
arbitration provision. Doc. 16 at 6-10.
IV.
Analysis
A.

Relevant Legal Principles Governing Arbitration
The law presumes that courts have plenary authority to

determine questions of arbitrability. Hous. Ref., L.P. v. United
Steel, Paper and Forestry, Rubber, Mfg., 765 F.3d 396, 408

(5th

Cir. 2014). However, if the parties agree, they may delegate such
authority to an arbitrator. Rent-A-Center, W., Inc. v. Jackson,
561 u.s. 63, 68-69

(2010). The party asserting an agreement to

delegate the arbitrability issue to the arbitrator must
demonstrate "clearly and unmistakably" that the parties so
agreed. AT & T Techs., Inc. v. Commc'ns Workers of Am., 475 U.S.
643, 649 (1986); Hous. Ref., L.P., 765 F.3d at 408

(citing

ConocoPhillips, Inc. v. Local 13-0555 United Steelworkers Int'l
Union, 741 F.3d 627, 630

(5th Cir. 2014)). Otherwise, the court

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should decide the issue independently, First Options of Chi.,
Inc. v. Kaplan, 514 U.S. 938, 943

(1995), determining (1) whether

the parties agreed to arbitrate the dispute in question and (2)
whether any federal statute or policy renders the claims
nonarbitrable, Wash. Mut. Fin. Grp., LLC v. Bailey, 364 F.3d 260,
263

(5th cir. 2004).
"[A]n arbitration agreement need not recite verbatim that

the 'parties agree to arbitrate arbitrability' in order to
manifest 'clear and unmistakable' agreement." Hous. Ref., L.P.,
765 F.3d at 410 n.28. Where, for example, the parties have agreed
to conduct arbitration according to arbitration rules that
delegate the determination of arbitrability to an arbitrator,
such agreement serves as clear and unmistakable evidence that the
parties agreed to delegate arbitrability. See,

~.

Crawford

Prof'l Drugs, Inc. v. CVS Caremark Corp., 748 F.3d 249, 262-63
(5th Cir. 2014)

(agreeing to conduct arbitration according to the

American Arbitration Association Rules); Petrofac, Inc. v.
DynMcDermott Petroleum Operations Co., 687 F.3d 671, 674-75 (5th
Cir. 2012)

(same); see Cooper v. WestEnd Capital Mgmt., L.L.C.,

832 F.3d 534
B.

(5th Cir. 2016)

(JAMS Rules).

The Parties Clearly and Unmistakably Agreed to Delegate
Arbitrability to an Arbitrator
Section 12.12 of the Operating Agreement states that

arbitration will take place "in accordance with the Commercial
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Arbitration Rules of The American Health Lawyers Association."
Doc. 7 at 58. Section 5.2(a) of the Commercial Arbitration Rules'
states: "ARBITRABILITY. Once appointed, the arbitrator may issue
a preliminary award that addresses whether the arbitration clause
is valid, and whether it applies to the claims or counterclaims
raised by the parties."
The parties' agreement to arbitrate disputes according to
the Commercial Arbitration Rules shows clearly and unmistakably
that they agreed to delegate arbitrability to arbitrators.
Plaintiff and defendant are the only members of Naranjito and the
only signatories to the Operating Agreement. The parties agreed
to submit all unresolved disputes arising "between two or more
Members under [the Operating] Agreement" to "conclusive and
binding arbitration . . . ," Doc. 7 at 58, and agreed to conduct
such arbitration according to the Commercial Arbitration Rules,
which provide that arbitrators may issue a preliminary award as
to arbitrability. Thus, defendant is entitled to have the claims
in dispute between the parties submitted to the arbitrators to
decide whether such claims fall within the scope of the Operating
Agreement's arbitration provision and then to resolve those
claims by arbitration if the decision is that they are.

3

The American Health Lawyers Association's arbitration rules are titled "Rules of Procedure for
Arbitration"; however, it appears undisputed that such rules are the "Commercial Arbitration Rules"
referred to in the Operating Agreement.
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Section 5.2(a) of the Commercial Arbitration Rules permits,
but does not compel, the arbitrator to issue a preliminary award
as to arbitrability. The court notes that the record does not
contain any information that would indicate whether defendant has
requested the arbitrator to issue such a preliminary award. Thus,
defendant should be given an opportunity to submit the
arbitrability issue to the arbitrator for decision, and the
arbitrators should be given the opportunity to decide the issue
of arbitrability.'
The Federal Arbitration Act provides that, where a court is
satisfied that the issues involved in a case are referable to
arbitration under an arbitration agreement, the court shall "stay
the trial of the action until such arbitration has been had in
accordance with the terms of the agreement

." 9

u.s.c.

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3.

For that reason, the court is ordering the above-captioned action
stayed until the arbitrator decides whether to issue a
preliminary award as to arbitrability.

4

The record shows that defendant filed its Second Amended Demand for Arbitration and
Statement of Claim with the American Health Lawyers Association requesting arbitration of specific
claims defined in the document and any other related claims identified through discovery. Doc. 17,
Appx. 0005-0008. However, the record does not show that defendant has requested or demanded that the
arbitrators decide the issue of arbitrability.
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v.
Order
Therefore,
The court ORDERS that plaintiff's motion to stay arbitration
be, and is hereby, denied.
The court further ORDERS that defendant's motion to compel
arbitration be, and is hereby, granted subject to resolution of
the issue of arbitrability.
The court further ORDERS that by 4:00p.m. on May 19, 2017,
defendant submit in accordance with the Commercial Arbitration
Rules the issue of arbitrability for resolution by the
arbitrators as promptly as possible.
The court further ORDERS that defendant inform the court
promptly once the arbitrators have resolved the issue of
arbitrability, and that if it has not been resolved by 4:00p.m.
on June 8, 2017, defendant inform the court by that time and date
as to the progress of the resolution of the arbitrability issue.

./
.

SIGNED May 9, 2017.

rict Judge

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